All through the market rally and budding economic recovery of the past 18 months, most people concluded that the crisis was over and it was time to start worrying about inflation again. But strategist Gary Shilling of A. Gary Shilling & Co. stuck by his guns:

It was DEFLATION we needed to worry about, Gary said. And it was BONDS, not stocks, that investors should be buying.

Well, Gary's bearishness on the stock market caused him to miss a nice run, but he has been dead right about bonds. And he has also been right about the potential for deflation--as evidenced by the recent Consumer Price Index numbers and the fact that most other strategists have come to agree with him.

So what's Gary's current outlook?

Same as it ever was:

Prepare for chronic deflation, buy bonds, and sell stocks.

Why is Gary still expecting deflation? Because consumers still have way too much debt, and this debt will take decades to work off. Also, consumers are saving money again, which means they aren't spending it. Banks have plenty of cash and reserves, but the demand for money just isn't there. And when consumers are strapped and credit is contracting, prices tend to fall. (See Gary's charts here >)

Gary's biggest concern about his deflationary outlook, in fact, is that most strategists have come to agree with him (the crowd is often wrong). But, for now, is sticking with his call.